Management Accounting and Finance in U.K. Museums and Music Organisations - Dissertation Example

?Management Accounting and Finance in museums and music organisations of UK Management accounting plays an important part in decision making, planning and controlling for the organizations. The business firm have been seen to implement various accounting techniques, which helps them in attaining profitability. The business environment in which the non profitable organizations operate has changed and new challenges have evolved. These challenges have compelled them to change the way in which they operated previously. This study aims to find the accounting techniques that are being followed in the music and art organizations and museums of United Kingdom. The study found that they use techniques like variance analysis; activity based costing, budgeting and other methods in order to conduct the management accounting efficiently. Table of Contents 1. Introduction 4 1.1 Management accounting 4 1.2 Overview of Museum and Art organization 4 1.3 Research Objectives 5 1.4 Research Questions 5 6. Conclusions and recommendations 7 6.1 Recommendation 8 Reference List 10 1. Introduction 1.1 Management accounting Management accounting is that segment of accounting that specifically deals with accounting and reports the detailed information regarding the operation to the management of the organization in order to develop and incorporate decisions in different areas of business (Bhattacharyya, 2011). It primarily aims towards the decision making group who are responsible for enforcing managerial control inside the organization. Management requires frequent financial information regarding various aspects of the business in a timely manner that ranges from special purpose reports, which deals with department specific information to preparing of the budgets and forecasting the estimated cost encompassing the whole business (Bhattacharyya, 2011). In every type of organization the manager requires frequent information related to various business activities that are taking place in order to implement timely and accurate business decisions for the future, direct the organization in an efficient manner towards achieving the goals and objectives, controlling the business results and finally planning and implementing decisions that will affect the operations of the business. The main functions that the manager carries out comprises of decision making, planning and controlling (Bhattacharyya, 2011; Chong, 2009). In order to execute their responsibilities in an effective manner the manager needs timely accurate information. Hence, information is a vital parameter in the success of a business and in order to provide appropriate information, managerial accounting identifies, gathers, measures, segregates and reports the information to the managers in such a way that management processes are fulfilled. Therefore, management accounting is the field of accounting that looks at providing information to the management. This information includes financial accounting, information related to decision making and planning, cost management, control, performance evaluation and determination of cost for the purpose of financial reporting. Management accounting consists of the reports that cater to the need of the management (Kulkarni and Mahajan, 2008). 1.2 Overview of Museum and Art organization The museums and art organizations that falls under the culture industry, has currently aroused the necessity of accounting but the dilemma persists regarding the methodology that should be used in order to measure the accountability. The debate remains whether for financial reporting, scientific collection, heritage and culture should be valued more and the extent to which accountability can be properly served by heavily emphasizing on the general purpose financial reporting alone. The debate related to accountability in the arts organization and museum is a subject of discourse for the last few decades. This has been further exaggerated by the need for viability in the art organizations and museum for ensuring long-term survival. Accountability does not only signify evaluating the efficiency of the resources used by the organization but also looks at effectiveness in achieving the targets of the organization. The accountability of these organizations is evaluated on the basis of the expectation led by public since these organizations are providing service to the public. Previously accountability was only related to the profit seeking commercial organizations by preparing financial statement following the accrual system and assessing the performance of the organization. By considering the reported profit and evaluating the solvency and liquidity of the firm by looking at the financial position (Kaiser, 2008). Commercial organizations are concerned about enhancement of viability consideration and financial wealth. The present situation for the museum and art organization is as such that they also need to use the financial statement and decide on the performance and accountability of the organization (Rentschler and Potter, 1996). 1.3 Research Objectives The reports generated by National Campaign for the Arts shows that the contribution of arts organization of United Kingdom has decreased in the recent year, which makes it necessary to analyse the financial and management accounting techniques of these organizations (Brown, 2011). Hence, this research focuses on investigation regarding the roles of management accounting and finance of museum and music organisations in UK. 1.4 Research Questions Gain an understanding of the type of accounting information recorded in arts organisations. Gain an understanding of how arts organisations use accounting information to develop their art institutions efficiently. Gain insight into the effectiveness and limitations of management accounting and business models in a climate of financial austerity. Gain an understanding of sources of finance and budgetary control in arts organisation. 6. Conclusions and recommendations The creative and culture industry is the powerhouse for the world economy. The art index published by National Campaign for the Arts in 2011 has suggested many interesting facts related to the cultural industry of United Kingdom (UK). The report suggests that the way in which the art organizations are funded and the policies that underlies behind this funding are also seen to change fast. The index revealed that the contribution of the business towards arts is seen to reduce by 17 percent over the three years starting from 2007. The individual contribution was also seen to fall by 13 percent (Brown, 2011). Grants from various trusts and foundations that go towards the organization are also seen to fall by 8 percent (Brown, 2011). The government of UK has expressed the intention to cut the funding provided by them to the art organization in the upcoming years. The public funding provided by the local authorities and Art Council England was seen to be stable till the year 2010 but in the recent years this funding amount seen to fall by significant value creating a concern in the art organization. The study reveals that the organizations are now looking at additional sources of income by organizing events. The events that they are planning to launch are expected to generate high amount of income for the organization. The management of the art organization have decided not only to sell tickets of the events in order to generate revenue but also look for sponsorship of the event. In this context, before organizing any event the management is setting targets in form of budget for the whole event. This budget is set as such the expected expense that the organization will be incurring and income that they will be generating are estimated. This gives them a clear idea regarding the revenue that they will be generating. Accounting techniques like variance analysis, activity based costing, budgeting and other methods are used in order to conduct the management accounting efficiently. These methods have been proved effective in achieving the future goals of the organization. In order to ensure that the performance of the organization is optimum, the target is monitored regularly by the management and if any excess of spending is observed it is notified to the concerned department so that proper actions can be taken. The organization aims to exceed their estimated sales figure. Apart from this the performance is also evaluated by taking feedback from the guest artist and the visitors. Any negative feedbacks received are taken seriously by the management and ardent steps are taken to eradicate the negative aspects. This reveals that the art organization and museums are not only focussing on generating additional income but also creating satisfaction among the artists and the customers. This will be helping the organization in attaining the objectives and creating long term relationship with the customers and the artists. The cutting down of the fund by various authorities have made the organization to shift their business model from profit sharing model to profit making model. Previously the organizations were focusing on sharing their profits with the partners but now they are looking towards generating profit. This profit is planned to be reinvested in the event that they will be organizing in the next year. Moreover, the outlook of the business regarding success has also changed. The success of the art organization is now more about making the customers, employees and the participating artists happy, bringing multiple art under one roof and encouraging art and music. Hence, it can be concluded from the findings of the research that the organizations are now more interested in implementing management accounting in a similar manner as done by the profit making commercial organization and the same time nurturing the cultural heritage. 6.1 Recommendation The main challenge for the art organization is that the economic crisis has affected the funding which is very important for the organizations that are not running for profitable ventures. These challenges have made the organizations to shift their focus from profit sharing model to profit generating model. On shifting to this model the accounting techniques used by the organization has also changed. In this regards the following recommendations are made: The organizations should carefully consider the transition that they are intending to do. They need to identify all the costs that are involved and simultaneously compare them with the profit that the new model will be generating. To reach to any concrete decision the firm need to compare this result with the result generated by the previous models. This is very similar to the cost benefit analysis. The firms who are having several branches of the organization located in different locations, should identify the unit that generates maximum profitability and should identify the factor that leads to this. The same factors need to incorporate in those units that are not showing such results. Scenario and sensitivity analysis should be conducted before implementing a new method or idea whether it is related to strategy or product. Reference List Bhattacharyya, D., 2011. Management accounting. New Delhi: Pearson Education India. Brown, M., 2011. How Healthy Is The Arts Sector? The Guardian [online] Available at < http://www.theguardian.com/culture/culture-cuts-blog/2011/dec/05/arts-funding-public-sector-cuts> [Accessed 27 August 2013]. Chong, D., 2009. Arts management. 2nd Ed. Oxon: Routledge. Kaiser, M.M., 2008. The art of the turnaround: Creating and maintaining healthy arts organizations. England: UPNE. Kulkarni, M. and Mahajan, S., 2008. Management accounting. Pune: Nirali Prakashan. Rentschler, R. and Potter, B., 1996. Accountability versus artistic development: The case for non-profit museums and performing arts organizations. Accounting, Auditing & Accountability Journal, 9(5), pp. 100-113. Read More